Rice v Chu & Anor (Residential Tenancies)
[2016] ACAT 107
•14 September 2016
ACT CIVIL & ADMINISTRATIVE TRIBUNAL
RICHARDS v CHU & ANOR (Residential Tenancies) [2016] ACAT 107
RT 474/2016
Catchwords: RESIDENTIAL TENANCIES – proposed increase in rent –whether rent increase is excessive – comparable properties
Legislation cited: ACT Civil and Administrative Tribunal Act 2008 s 26
Residential Tenancies Act 1997 ss 64, 64A, 66, 67, 68, 69 standard terms 35, 38
Cases cited: Commissioner of Housing v Key [2003] ACTSC 44
Mazzone v Tomkins [2009] ACAT 13
Players Pty Ltd v The Corporation of the City of Adelaide [2001] SASC 369
List of
Texts/Papers cited: Hyam A, The Law Affecting Valuation of Land in Australia (The Federation Press, 5th ed)
Macquarie Dictionary
Explanatory Statement to the Residential Tenancy Bill 1997
Tribunal: Senior Member H Robinson
Date of Orders: 14 September 2016
Date of Reasons for Decision: 14 September 2016
AUSTRALIAN CAPITAL TERRITORY )
CIVIL & ADMINISTRATIVE TRIBUNAL ) RT 474/2016
BETWEEN:
KAITLYN RICHARDS
Applicant/Tenant
AND:
WYATT CHU AND MYAT SOE
Respondents/Lessors
TRIBUNAL: Senior Member H Robinson
DATE:14 September 2016
ORDER
The Tribunal orders that:
- A rental rate increase of $40.00 per week is to take effect from 4 July 2016, the date when the proposed increase would, apart from section 66, have taken effect.
- Leave is granted for the applicant to make an application under section 69(2) for an order for time to repay the rent owed by reason of Order 1, such application to be filed and served within 7 days of the date of this Order.
………………………………..
Senior Member H Robinson
REASONS FOR DECISION
This is a review, pursuant to section 68 of the Residential Tenancies Act1997 (the Act), of a proposed increase in rent for a premises located in the Axis Complex at 1 Mouat Street Lyneham in the Australian Capital Territory (the premises).
The applicant’s lease commenced on 6 July 2015. The fixed term period expired on 3 July 2016 and the applicant continues to occupy the premises on a periodic tenancy.
By way of a letter dated 21 April 2016 the respondents’ agent, Independent Property Management (the Agents), gave notice of a proposed rental increase from $680 per fortnight ($340 per week) to $780 per fortnight ($390 per week). Following negotiations between the parties, the proposed increase was reduced to $760 a fortnight, or $380 a week. This is a rise in rent of $80 a fortnight, or $40 a week.
The applicant argues that the proposed rental increase of $40 a week is excessive. She seeks an order that the rent increase be disallowed in full or in part pursuant to section 67 of the Act.
Applicable law
Section 64A of the Act provides that a lessor may not increase the rent during the currency of the fixed term unless the amount of the increase, or a method for working it out, is set out in the residential tenancy agreement. Clause 35 of the standard residential tenancy terms contained in Schedule 1 of the Act (the Standard Terms) provides that the rent may also not be increased within twelve months of the beginning of a tenancy. There was no dispute that the rent increase was proposed to take place 12 months after the commencement of this tenancy, and following the expiration of the fixed term period, and therefore that both these requirements are met.
Clause 38 of the Standard Terms provides that a lessor must give a tenant eight weeks written notice of intention to increase rent and include in the notice the amount of the increase and the date when it is proposed to take effect. There was also no dispute that the notice given by the respondents fulfilled these requirements.
Part 5 of the Act sets out the provisions by which a tenant may seek a review of an increase in rent. Section 68 provides a set of ‘guidelines’ for the making of orders by the Tribunal as follows:
68Guideline for orders
(1)The ACAT must allow a rental rate increase that is in accordance with the standard residential tenancy terms unless the increase is excessive.
(2)For subsection (1)—
(a)unless the tenant satisfies the ACAT otherwise, a rental rate increase is not excessive if it is less than 20% greater than any increase in the index number over the period since the last rental rate increase or since the beginning of the lease (whichever is later); and
(b)unless the lessor satisfies the ACAT otherwise, a rental rate increase is excessive if it is more than 20% greater than any increase in the index number over the period since the last rental rate increase or since the beginning of the lease (whichever is later).
(3)If a tenant or lessor proposes that a rental rate increase is or is not excessive, the ACAT, in considering whether it is satisfied about the proposal, must consider the following matters:
(a)the rental rate before the proposed increase;
(b)if the lessor previously increased the rental rate while the relevant tenant was tenant—
(i)the amount of the last increase before the proposed increase; and
(ii)the period since that increase;
(c)outgoings or costs of the lessor in relation to the premises;
(d)services provided by the lessor to the tenant;
(e)the value of fixtures and goods supplied by the lessor as part of the tenancy;
(f)the state of repair of the premises;
(g)rental rates for comparable premises;
(h)the value of any work performed or improvements carried out by the tenant with the lessor’s consent;
(i)any other matter the ACAT considers relevant.
(4)If the ACAT considers a proposed rental rate increase is excessive but a lesser increase would not be, it may disallow so much of the increase as is excessive.
(5)In subsection (2):
index number means the rents component of the housing group of the Consumer Price Index for Canberra published from time to time by the Australian statistician.
It is well established that the 20% figure in Section 68(2) determines which party bears the onus of proof to establish the excessiveness or non-excessiveness of the proposed rental rate increase.[1] There was no dispute at the hearing that the proposed rent increase was more than 20% greater than any increase in the index number for the purposes of subsection 68(2), and therefore that the onus was on the Lessors to prove that the increase was not excessive.
[1]Commissioner for Housing v Key [2004] ACTCA 17; Mazzone v Tomkins [2009] ACAT 13 at [9]
The matters that the Tribunal must give consideration to are set out in subsection 68(3) of the Act. In relation to these factors, the parties were largely in agreement that:
(a)the Lessors had not previously increased the rent (and indeed could not have increased the rent) (section 68(3)(a)and (b));
(b)the outgoings and costs had increased through the annual increase in rates and levies (noting no detail was provided), but the increases were not substantial and this was not advanced as a basis for the increase (section 68(3)(c));
(c)there had been no change in the services provided by the Lessors to the Tenant (section 68(3)(d));
(d)the state of repair of the premises was consistent with its age and location and had not changed beyond fair wear and tear (paragrapgh 68(3)(f)); and
(e)the Tenant had not carried out any work or improvements that would affect the rent (sections 68(3)(h)).
Rather, the parties agreed that this was primarily a matter that involved consideration of section 68(3)(g) – that is, the rental rates for comparable properties, with comparable facilities. The Lessors’ position was that the rent was well below market rent, that it had been for the duration of the fixed tenancy, and that the rise brought the rent within market parameters. The Tenant’s position was that the rise was excessive.
Preliminary observations
Before considering the evidence provided by the parties, it is worth setting the purpose of the rent review process.
The Explanatory Statement to the Residential Tenancy Bill 1997 states that a purpose of the Act is to “... balance the interests of the parties to a residential tenancy agreement.”[2] As a part of this balancing, “[t]he Bill regulates the manner in which increases in rent may be imposed. Excessive increases in rent may be reviewed by the Residential Tenancies Tribunal.”[3]
[2] Page 1
[3] Ibid
It is axiomatic that the interest of a lessor, as the owner of a property, is to seek a return on their investment in the property. This may be by way of rent paid by a tenant in exchange for the right to reside in the property. A tenancy is a marketable good, and, subject to a few exceptions, the Act allows the market to determine rents and rent increases. As a broad principle, a tenant who considers the rental increase to be unreasonable is entitled to vacate the premises and find accommodation that is better value, and a lessor who insists on unreasonable rents will be forced to lower that rent in order to find a tenant.
However, the Act also recognises that the interest of a tenant may not always be as simple as finding the most reasonable rent. A tenant may have arrangements with schools, medical practitioners and other service providers in the area in which they are renting, which may be hard to re-establish in a new area. They may have pets or other personal circumstances that make finding alternative accommodation difficult. Long term tenants may have an emotional attachment to the premises they are renting. The costs of moving home are also often significant. In particular cases, the existence of some or all of these factors may create a situation where a lessor may attempt to leverage excessive rent increases that are well in excess of market increases. Conceivably, an excessive increase in rent could also be used by a lessor as a proxy means of forcing a particular tenant to leave without the need for the lessor to identify a lawful basis for terminating the agreement or provide the lengthy notice that is a perquisite to issuing a valid ‘no cause’ notice. In order to provide tenants with some protection from such circumstances, and to protect the integrity of the termination regime within the Act, the Act allows the tribunal to review proposed rent increases, and amend or disallow them where satisfied that they are excessive.
Granted, the motivation and intention of the parties are not matters that require consideration under section 68 - indeed, only in the rarest of cases would there be evidence of these kinds of subjective motivations before the tribunal, and even then there may be a question as to its relevance. However, the policy intention of the Act must be borne in mind - that is, the particular nature of the market for rental accommodation means that there is some capacity for lessors to exploit tenants, and accordingly the tribunal has been expressly tasked with ensuring that rental increases are not so out of line as to be excessive.
I note in passing that in Commissioner of Housing v Key [2003] ACTSC 44 at [31], Crispin J stated that the tribunal is not obliged to explain what weight it gives to a particular factor set out in section 68(3), nor how each factor is taken into account in determining the extent to which a proposed rental rate increase should be allowed or disallowed. Nonetheless, in a case such as this, where the factors relied upon are narrow in scope, and the parties have made submissions in some depth, I think it appropriate that I set out my reasoning in some detail.
The Evidence
According to the Macquarie Dictionary[4], the word ‘excessive’ means “exceeding the usual or proper limit or degree; characterised by excess”. ‘Excess’ in turn means, relevantly, “a going beyond ordinary or proper limits.”
[4] 6th edition, 2013
The goal of the Tribunal, therefore, is not to determine an exact rental value for the property, nor whether it is broadly fair, but rather to determine whether or not the increase claimed by the lessor goes beyond the reasonable or proper limits of the rent that could be secured for that property.
The primary consideration must be what a reasonable person would, in an open market, be prepared to pay to rent the property. This is a different question to that of the property’s market value for the purposes of a sale. While a particular tenant may have a preference or predisposition that inclines them toward one property over another, most tenants are unlikely to be interested in investment return or capital gain, which are critical to a sale value. The rental value of a property should be assessed by reference to the property in its existing physical condition and on the assumption that the current state of things continues, not its potential for renovation.[5]
[5] See: Players Pty Ltd v City of Adelaide [2001] SASC 369 at [55]-[56]; see also Hyam A, The Law Affecting Valuation of Land in Australia (The Federation Press, 5th ed)
Both parties provided the Tribunal with their own ‘market analysis’ of what, they contended, were ‘comparable premises’. Both analyses were based on properties identified through a search of Allhomes.com.au. With a few exceptions, neither the applicant nor the Agent had inspected the premises relied upon in their respective market analyses.
The information drawn from advertisements on an internet marketing site is, inevitably, imperfect. While the advertisements are useful in setting out such things as the number of bedrooms, the facilities, location and the size in square metres, care must be taken when undertaking any comparison that goes beyond these objective characteristics. The various descriptors used by the advertisers – ‘large’, ‘generous’, ‘luxury’, ‘perfect for entertaining’ etc are all subjective and may be tainted by some puffery.
Still, section 68(3)(g) of the Act requires merely a review of the “rental rates of comparable premises”. It does not require an independent or professional rental valuation, and to require a party to go to the expense of obtaining one for a short-term residential tenancy would be disproportionate. The Tribunal may inform itself in any way it considers appropriate in the circumstances[6], and having regard to the value of this matter, and the necessity to ensure tribunal processes are simple and inexpensive[7], I am prepared to accept that reliance on advertisements provides reasonable and sufficiently probative evidence in the circumstances.
[6] ACT Civil and Administrative Tribunal Act 2008 s 26
[7] Ibid s 6(b)
By reason of the operation of section 68(2), the onus lay on the Lessors to establish that the rent increase was not excessive. This means that the Lessors needed to establish, to the satisfaction of the Tribunal, that the rental increase was not excessive.
The Market Evaluations
The Lessors through their Agent, sought to discharge their onus by means of two comparative market analyses:
(a)the first was undertaken in April 2016 and consisted of five one bedroom apartments in the inner north, including two in the Axis complex; and
(b)the second analysis was undertaken in June 2016 and consisted of three one bedroom apartments in the inner north, including two in the Axis complex.
The position of the Agent, on behalf of the Lessors, was that the only ‘comparable properties’ were one bedroom units in other inner north locations –Lyneham, Dickson, Braddon, Turner and the City. The Agent did not include any properties outside these areas. The properties selected all offered laundries, allocated carparks and reverse cycle air conditioning.
I accept that the most directly comparable properties are those within the same Axis complex. The Agent relied upon:
(a)A south-east facing eighth floor apartment for $380 per week (April).
(b)A sixth floor apartment for $380 per week (April).
(c)A west-facing sixth floor apartment for $400 per week (June).
(d)A ground floor apartment for $418 a week (June).
The Agent accepted that the ground floor apartment was the least comparable, as it offered a larger terrace area with a patio and entertaining area. I do not consider this property to be comparable.
I accept the evidence of the Tenant that the two apartments that were advertised for $380 per week are somewhat different, and perhaps slightly better, than the subject unit. One has significantly better views, and the other less prospect of being overlooked by other apartments and a slightly larger floorplan. The question is whether this means the properties would attract a higher rent.
The Agent’s evidence to the Tribunal was that views and outlook do not matter so much to renters as to change the rental value of a unit. I do not fully accept this. Of the advertisements submitted by the Agent, one unit was expressly advertised as being an “apartment with a beautiful view”, and the relevant photograph was of that view. The other was advertised as having “amazing views” and “remarkable views”. Clearly, the views are worth something to tenants, or they would not feature so strongly in the advertisements. The difficulty is determining how much.
Also relevant are the facilities available. Access to the gym, pool and barbeque area features extensively in the advertisements for the Axis premises. Only two of the other premises suggested by the Agent as being comparable feature a pool. Both were $380 per week. I accept that a pool and other facilities may make an apartment somewhat more attractive to a tenant, but again it is difficult to assess what this is worth to the average tenant.
Of the complexes that do not feature a pool, the Agent relied on two that were $380 a week, and a third that was only $360 a week. The $360 apartment is located in the ‘City Edge’ complex. I accept the evidence of the Agent that this is an older block, and may not be as attractive to tenants as the newer premises. It is suggested as representing the lower end of the relevant market.
Having regard to all the properties relied upon by the Agent, I am satisfied that there is evidence before the Tribunal that $380 per week is a reasonably standard rate for a one bedroom apartment in a newer facility with a pool in the inner north. It is standard for such an apartment in the Axis Building.
In addition to its market analysis, the Agent relied upon a statement by Tim Westphall, Team Leader – Independent Property Management – which stated that rents in the City and Belconnen areas were lower in mid-2015, due to excess supply, but apartments in the Lyneham area have risen in price again since. Mr Westphall was not called to give evidence and was not cross examined. Still, it was not in dispute that there were many new property developments in the inner-north in mid-2015, and there are fewer now.
The Tenant’s comparative market analysis took a broader view of “the market” than that proposed by the Lessors. She contended that the Agent’s selection of properties was too restrictive, and provided her own selection of comparable properties that included properties in the Belconnen Town Centre and the Belconnen suburb of Bruce, as well as properties in Braddon and Dickson. The rents for these properties were around $330-340 a week.
I will deal with the properties in Belconnen first. The applicant contended that the properties in Bruce and Belconnen were comparable because both are near shopping complexes and have ready transport to the city. She contended that the travel times to the City are likely to be the same from Bruce as they would be from Lyneham, and catching buses would perhaps be easier. There are also a similarly wide variety of shops and eateries within walking distance.
All this, I accept, to a point. Certainly, from a transportation perspective, for a person using buses or a car, there is no reason why Belconnen would be any more or less attractive than the inner north. There are also many facilities in Belconnen that make it a convenient place to live. However, I am persuaded by the arguments of the Agents that the market for real estate in the inner north is different to that in Belconnen. One aspect of this difference is certainly the higher property values, but this is not a matter that is likely to be of relevance to a renter. Far more significant is that the restaurants, cafes, nightlife and general ambiance of the Dickson and Lyneham areas are different to the Belconnen area. I do not accept that properties in Belconnen are directly comparable to properties in the inner north of Canberra, and I do not consider that any of the Belconnen properties offer a suitable comparison.
Some of the other properties relied upon by the Tenant did, however, suggest that one bedroom properties in the inner north are regularly rented for significantly less than the $380 suggested by the Lessors.
The first such property relied upon the Tenant was a one bedroom property in De Burgh Street in Lyneham. This property was available for $310 a week. It appears modern and well located, but is different from the subject property in that it is in a smaller complex, with fewer facilities. The rent asked for this property was considerably less than that sought for the other properties in the analyses of both parties. In such circumstances, and in the absence of other properties with similar rents, I wonder whether there is some aspect of this property of which the Tribunal is not aware that affected its market rent. Still, on the evidence before the Tribunal, I accept it represents the low end of the market for one bedroom properties in the inner north.
The second property relied on by the Tenant was an apartment in Dooring Street Dickson for $345 per week. This is also a smaller complex. It has an underground carpark and air-conditioning but no other facilities.
The third property relied upon by the Tenant was a top floor, one bedroom apartment in Challis Street Dickson. The apartment was described as having “270 degree views” – again, a reference to views as important in advertising. The complex has basement parking and security parking, but no gym or pool. The asking rent was $355 a week.
The fourth property was in Fox Place in Lyneham. Again, the apartment was in a smaller complex, with fewer facilities than the subject property. The rent was stated to be “$350-$380”. The Tenant has annotated “furnished” on the page, which presumably indicates that the higher rate was the price for a furnished apartment, although this is not obvious from the advertisement.
The fifth property relied on by the Tenant was in the Volante complex in Dickson. Again, the apartment has a single restricted car space and storage cage, but no gym or pool. The property was for rent at $360 a week.
The sixth property was in a complex in Braddon. The facilities were more limited than those in Axis, and it appears to be an older complex. The rent was $355 per week.
The seventh example was a premises in ‘Coventry’ in Dickson. These premises have a car space and laundry, but no pool or gymnasium. The asking rent was $340 a week.
The eighth example was a unit in the Metropolitan complex in Braddon. This complex does have a pool and gymnasium and appears to be broadly similar in character to that of Axis, albeit it is in an older building. The apartment was for rent for $360 per week.
Finally, the Tenant relied on an apartment in Valonia in Braddon for $350 a week. The Valonia complex has a gym on the premises, although it does not seem to have a pool, which would place it in the middle in terms of facilities.
The Tenant’s property analysis demonstrates that there are a range of properties available for rent in the inner north for considerably less than $380 a week. However, I have two difficulties with her analyses. First, many of these apartments are in smaller complexes, and most have fewer facilities than those available at Axis. Secondly, and more importantly, I cannot accept that any of the apartments in other complexes are as comparable as like apartments in the Axis complex.
The Tenant has not suggested that there is anything exceptional or deficient about the subject property that would make it substantially less attractive than the average apartment within Axis. She does suggest, and I accept, that some one bedroom apartments within Axis are more attractive by reason of better floor plan or views. I accept that these apartments may be easier to rent when marketed against the subject property, and they may attract a marginally higher rent. I accept that the three comparable properties relied upon by the Agent may fall within this description. However, the question before me is not whether the proposed market rent is perfectly assessed, but rather whether the proposed rent increase is excessive, in the sense of being beyond the reasonable or proper limits of the market rent that could be secured for that property. Having regard to the evidence about the other properties for rent in Axis, as well as the broader market analyses, I satisfied that it is not.
Consideration
The best evidence for reasonable market rent for a property is the rent payable for similar properties in either the same or a similar complex. The only evidence of rents for other premises at Axis was provided by the Lessor. The Lessor’s market analysis suggests that $380 per week is usual for a one bedroom apartment within that complex, and the proposed increase in the rent in this case will bring the rent in line with that analysis. The rent is also, in my view, consistent with the rents asked for other properties in the inner north, having regard to relative ages and facilities.
For the above reasons, the Tribunal determines that a rental rate increase of $40.00 per week is to take effect from 4 July 2016, the date when the proposed increase would, apart from section 66, have taken effect.
The Tenant should have an opportunity to apply for time to pay the rent owed as a result of this determination in accordance with section 69 of the Act. The Tenant may make an application by using the tribunal approved form ‘Application for Interim and Other Orders’, and filing that with the tribunal, together with evidence about her capacity to pay the rent owed, within 7 days of the date of this order. The application and supporting evidence should be served on the other party.
………………………………..
Senior Member H Robinson
HEARING DETAILS
FILE NUMBER: | RT 474/2016 |
PARTIES, APPLICANT: | Kaitlyn Richards |
PARTIES, RESPONDENT: | Wyatt Chu & Myat Soe |
COUNSEL APPEARING, APPLICANT | N/A |
COUNSEL APPEARING, RESPONDENT | N/A |
SOLICITORS FOR APPLICANT | N/A |
SOLICITORS FOR RESPONDENT | N/A |
TRIBUNAL MEMBERS: | Senior Member H Robinson |
DATES OF HEARING: | 1 August 2016 |
1
4
2